Intel took the wrong path and bet on the wrong horse. How can it defeat Qualcomm?

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Introduction: Intel China President Yang Xu said on April 2 that Intel has adjusted the focus of global industrial cooperation and will invest more innovation resources in Shenzhen. This is a delicate moment for Intel, the global chip giant. Although the company does not need to face life and death for the time being, every decision at the moment may push it to the brink of life and death.

OFweek Electronic Engineering Network News: Intel China President Yang Xu said on April 2 that Intel has adjusted the focus of global industrial cooperation and will invest more innovation resources in Shenzhen. For the global chip giant Intel, this is a delicate moment. Although the company does not need to face life and death for the time being, every decision at the moment may push it to the brink of life and death.

In the era of mobile Internet, Intel has shown signs of decline - the Wintel combination that once "dominated" the IT industry in the PC era has gradually been marginalized, and both Microsoft and Intel have started to catch up.

On September 26, Intel announced that it would invest 9 billion yuan in Tsinghua Unigroup's holding company that owns Spreadtrum Communications and RDA Microelectronics, and acquire a 20% stake.

What does Intel intend to do by paying a high premium? Everyone says that the "Prism incident" is the beginning of a nightmare for American companies in overseas markets, but for Intel, this may be an opportunity.

Acquired a stake in Tsinghua Unigroup at a high premium

Based on the acquisition price, Intel valued the two companies at US$7.5 billion, a premium of 178%.

On September 26, Intel announced that it had signed a series of cooperation agreements with Tsinghua Unigroup to jointly develop mobile phone solutions based on Intel architecture and communication technology, and expand the products and applications of Intel architecture mobile devices in China and the global market. At the same time, Intel will invest 9 billion yuan in Tsinghua Unigroup's holding company that holds Spreadtrum Communications and RDA Microelectronics, and acquire a 20% stake.

The bosses of both sides expressed their “thumbs-up” to this.

Intel CEO Brian Krzanich said that China is the world's largest smartphone consumer market, and the cooperation with Tsinghua Unigroup is a milestone for Intel.

Zhao Weiguo, chairman and president of Tsinghua Unigroup, said that vigorously developing the integrated circuit industry has become a national strategy. This cooperation covers multiple aspects from design and development to marketing and capital operation, which shows Intel's confidence and commitment to the Chinese market and will also promote the advancement of China's semiconductor technology.

Behind this win-win business cooperation is the high premium given by Intel.

According to company public information, Spreadtrum and RDA are two leading domestic chip design companies that develop mobile chipset platforms for smartphones, feature phones and other consumer electronics products that support 2G, 3G and 4G wireless communication standards.

Both companies were previously listed on the Nasdaq. Tsinghua Unigroup had nothing to do with chip products. In July 2013, Tsinghua Unigroup spent $1.78 billion to acquire Spreadtrum, and in July this year, it acquired RDA Microelectronics for $910 million. After the acquisition, Tsinghua Unigroup became the absolute leader in the mainland chip design industry.

According to Intel's acquisition price, it values ​​the two companies at $7.5 billion, or about 46.5 billion yuan. Tsinghua Unigroup spent only $2.69 billion to acquire the two companies. The combined annual revenue of the two chip design companies is about $1.3 billion.

Intel paid a 178% premium. Intel paid for its mistake

Intel took the wrong path in chip architecture and bet on the wrong horse in mobile operating systems.

Not only has Intel invested in Tsinghua Unigroup at a high premium this time, but it has also been sending signals of "closeness" to the Chinese market since 2013.

Since the second half of 2013, the relationship between Intel and many small manufacturers in Shenzhen has suddenly become close. In addition to providing chips at the "super low price" of US$15, Intel has also spared no effort in supporting small manufacturers to launch tablet products. Even Intel's senior executives have frequently visited Shenzhen to meet directly with small manufacturers and small bosses, which has flattered these grassroots small bosses. You know, some of these small manufacturers are grassroots companies without any brand at all.

Intel's unusual behavior is because it realizes the historical mistake it has made, which is throwing Intel out of the core of world technology.

In June 2006, on the eve of the mobile Internet boom, Intel felt that the ARM series processors were not profitable and sold them to Marvell for $600 million. At that time, the Internet terminals were mainly PCs, most of which were based on the x86 architecture dominated by Intel. Since then, the mobile Internet wave has brought about a huge change in the industry structure. In 2012, Internet terminals became mainly smart terminals such as smartphones and tablets, and ARM chips accounted for about 75%.

Intel took the wrong path in chip architecture and made the wrong bet in mobile operating systems. When Android had already become mainstream, it wasted more than a year working with Nokia on Meego.

It was too late for Intel to come back to support Android. Most programs on the market were developed based on ARM processors, and Intel was marginalized. In early 2012, Intel announced its entry into the mobile chip field. Although it launched some mobile phone products with Lenovo and other manufacturers, it did not achieve large-scale shipments in the end.

Some commentators believe that Intel is facing a vicious cycle. Poor compatibility leads to poor performance, poor performance cannot attract users to buy, and insufficient number of users leads to developers' unwillingness to improve compatibility and performance. As a result, compatibility becomes worse, and Intel is trapped in a vicious circle in the mobile field.

In 2013, Intel adjusted its thinking and began to focus on the tablet market as its main market to enter the mobile market. It also set a shipment target of 40 million. The only goal was to get Android devices using Intel processors to consumers as quickly and cheaply as possible, and to increase the volume in the mobile market first. To this end, Intel was willing to lose money to gain sales.

The Chinese market brings opportunities for turnaround

With the market support from Spreadtrum and RDA, as well as policy support, Intel's turnaround has more possibilities.

Now comes a bigger opportunity.

In 2013, the "Prism incident" broke out. As the incident continued to evolve, the media revealed that the mobile phones of government officials including German Chancellor Angela Merkel had been monitored by the United States. This incident made governments around the world fear the lack of mobile phone communication chip technology.

China has also elevated information security to the level of national security. On the eve of this year's two sessions, the Central Leading Group for Cybersecurity and Informatization was established.

According to media reports, the security of communication chips is given top priority. Qualcomm, the global communication chip giant, is caught in an "anti-monopoly" quagmire in China.

At the same time, the central and local governments are issuing policies to support the development of the integrated circuit industry. On September 25, Xu Xiaotian, executive vice president of the China Semiconductor Industry Association, revealed in Shanghai that the National Integrated Circuit Industry Investment Fund will be established soon, with a first-phase fund size of 120 billion yuan. Local governments such as Beijing, Anhui, and Tianjin have also issued opinions on supporting integrated circuits, focusing on supporting local leaders in integrating and expanding in the field of integrated circuits by setting up investment funds.

In June this year, the State Council officially approved the release of the National Integrated Circuit Industry Development Promotion Outline, which proposed that the sales revenue of my country's integrated circuit industry would exceed 350 billion yuan by 2015. Compared with 250.8 billion yuan in 2013, it has increased by nearly 100 billion yuan.

A person close to Tsinghua Unigroup said that Tsinghua Unigroup is an enterprise under the supervision of the Ministry of Education. According to the Outline, the government will support outstanding domestic enterprises, and Tsinghua Unigroup can obtain policy support based on a number of indicators.

Industry insiders have analyzed that policy can explain why Tsinghua Unigroup is making large-scale acquisitions in the chip industry at this point in time. Further deduction shows that Intel's high premium investment in Tsinghua Unigroup can not only show Intel's "China attitude" and resolve potential market risks, but also expand the Chinese market with the support of government policies, while hedging against competitor Qualcomm, which can be said to kill two birds with one stone. At present, China has become the world's largest smartphone market. According to the latest research report released by market research firm Strategy Analytics, in the first quarter of 2014, Qualcomm maintained its first position in the global baseband chip market with a revenue share of 66%, followed by MediaTek and Spreadtrum with shares of 15% and 5% respectively. MARVEL and Intel ranked fourth and fifth respectively.

With the market support from Spreadtrum and RDA, as well as policy support, Intel's turnaround has more possibilities.

Exchange technology for market

It is reported that the cooperation between Intel and Tsinghua Unigroup is also a measure for Intel to deal with "localization".

One issue that needs attention is how Intel can convince Tsinghua Unigroup to join the "localization" feast.

An Intel official told the Beijing News that according to the terms of the agreement, Spreadtrum will jointly develop and sell a series of Intel architecture-based system-on-chip products. The first batch of Intel architecture-based system-on-chip products will be launched in the second half of next year and will be sold jointly by the two companies using their own brands.

In other words, Intel will entrust the current mobile phone chips to Spreadtrum for design and sales, which is what Intel's current mobile communications team is doing. A large part of it will be taken over by Spreadtrum in the future, and the chips produced by Spreadtrum will have the Spreadtrum logo.

In addition, there are reports that the cooperation between Intel and Tsinghua Unigroup is not limited to mobile phone chips, but will also include cooperation on server chips and PC CPUs. This is also a measure for Intel to deal with "localization".

Intel China President Yang Xu previously said that Intel will definitely "participate" in the growth of Chinese companies in the future.

An Intel official said that the differentiation of Intel architecture chips produced by Intel and Spreadtrum in the future has not yet been announced, but what is certain is that Intel has not given up on research and development, the two sides will communicate with each other, and Intel will provide technical support.

In short, Intel hopes to "trade technology for market."

According to a policy interpretation article published in the People's Daily, the reason why the government wants to set up an investment fund to strengthen the "Chinese chip" is because the integrated circuit industry is a capital-intensive industry that requires long-term, large-scale financial support. This interpretation article states that my country's "chip-software-complete machine-system-information service" industrial chain synergy pattern has not yet been formed. For example, most chip design companies manufacture high-end products overseas. In terms of technology, my country still has many technical gaps in general-purpose integrated circuits such as general-purpose CPUs, memories, microcontrollers and digital information processors, and some high-end special circuits.

Gu Wenjun, chief semiconductor analyst at iSuppli, believes that through in-depth strategic cooperation with Intel, Tsinghua Unigroup can not only obtain authorization for Intel's relevant technologies, but also obtain strategic support from such an international giant. In future architecture selection, technology research and development, process development, marketing and other aspects, Tsinghua Unigroup will have a powerful "teacher and friend" resource, which is of great significance to its internationalization.

Will Spreadtrum abandon the current ARM architecture and move entirely to Intel architecture in the future?

A person related to Tsinghua Unigroup said that things are not simply either-or and need to be tested by the market.

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